Housing finance is among the most convenient financial options available to assist in property buying. It is easy to avail of and with increasing popularity, many lending institutions have entered the fray, offering competitive schemes to attract customers. For those looking to obtain a housing loan, picking the best opportunities makes smarter fiscal sense. But if you are already a home loan borrower, you can consider a loan shift if you’re eligible for a more appealing and competitive housing loan scheme.
Home loan balance transfer is the act of shifting your present home loan to another lender, who may offer lower interest rates, along with other favourable terms. This is mainly done to bring down the cost of credit and make the repayment process as comfortable as it can be, keeping in mind your financial standing.
When Should You Consider a Balance Transfer?
The right time to switch lenders is when you find lower home loan interest rates as compared to your current loan. To make sure that it is indeed a financially sound move, the new interest rate should be lesser by at least 1.75% to 2%, and the tenor must be lower than or like your existing loan. This will result in significant reduction of your EMIs.
Furthermore, individuals can opt for a home loan balance transfer when they are in the initial phase of their housing loan repayments. During the earlier years, the interest component forms a major chunk of your EMIs. It gradually comes down as the loan progresses and the principal component of your EMI increases.
Home Loan Balance Transfer Process
Understanding the entire transfer procedure is important to ensure reduced EMIs and other benefits, which can help restrict your loan costs within a reasonable range. The process to shift your current housing loan involves the following steps as mentioned below:
- Fill out the application form
Contact the new lender with to you wish to transfer your home loan. Get all the necessary information about the charges associated with the process. Factor in these costs when computing the estimated decrease in EMIs with the new lender. Calculate the expected savings against the present loan to assess the requirement for a balance transfer before you fill out the application form.
One can check the balance transfer schemes of other lenders to compare their rates with the help of a home loan balance transfer calculator and then zero in on the right lender. This will enable you to make informed decisions and examine your loan transfer realistically.
- Provide details of the present loan
You will need to submit all the requisite paperwork, such as identity proof, address proof, income proof and property documents along with the details of your current home loan.
- Secure a sanction letter from the new lender
Once the new lender evaluates your documentation and deems your application satisfactory, you will receive a sanction letter. The procedure may vary depending on the lender.
- Apply for the first set of documentation
After receiving the sanction letter, you must apply to the current lender for the first set of documents and the loan account statement, which should be submitted to the new lender.
- NOC from the current lender
Request your current lender to issue a home loan NOC. This letter will contain essential information regarding your loan – total amount of the loan, outstanding sum, any pre-payment charges or other pending dues, etc.
- Submission of agreement documents
Once you get the NOC, you need to submit all the property-related documents as required, including the registered agreement paper.
- Assessment of property by the new lender
This is a critical part of the loan transfer process that could take a few weeks. The new lender will evaluate your property based on specific parameters. You may have to furnish relevant property papers for legal verification and valuation of the house.
- Issuing of cheque to the current lender
Once all the necessary formalities have been completed and the lender is convinced of your property and legal documents, they will issue a cheque with the outstanding home loan amount in the name of the current lender.
- Existing loan closure
Upon receiving the cheque, the current lender will close your loan. A few days later, you will be handed the original documents of your home loan, which need to be deposited with the new lender.
- Signing the new loan agreement
Once the new lender receives all the requisite documentation, you will be asked to sign the new home loan agreement. Thereafter, your EMI payments will commence as per the new terms.
Home Loan Balance Transfer Charges
Lenders levy certain charges during loan transfers. The existing lender may ask you to pay a penalty as balance transfer charges, which is calculated on the outstanding loan amount. Lenders also charge a fee for processing transfer applications that require verification of information, subsequent paperwork, etc. You may be levied pre-payment or foreclosure charges while you foreclose your existing loan. Also, one needs to check if mortgage registration charges are included in the previous loan transfer expenses.
Banks and financial institutions have their own policies for customers looking to switch home loans. Apart from the eligibility criteria and documentation requirements, the additional charges for effecting a home loan balance transfer should be carefully considered. Otherwise, you may have to incur expenses and fees that you hadn’t previously considered, which could increase the debt burden.